Wealthy Kenyans and politicians will import helicopters and planes at cheaper prices after President William Ruto’s administration proposed to scrap three taxes on aircraft and parts at a time the Treasury plans to hit the middle class with higher fuel and salary taxes to fund the Sh3.59 trillion budget.
In the Finance Bill, 2023, the government proposes to exempt importers of aircraft, especially choppers and helicopters , from paying the 16 percent Valued Added Tax (VAT) while scrapping the 3.5 percent import declaration fee (IDF) and the two percent Railway Development Levy (RDL).
“The major beneficiaries are buyers of aircraft not exceeding 2,000 kilogrammes and helicopters of less than two tonnes and aircraft of more than 2,000 kilogrammes,” said Robert Waruiru, a partner in charge of tax and regulatory at Ichiban Tax & Business Advisory.
The tax cuts will come as a major boost to the aviation industry, which decried the re-introduction of these levies by the former administration of President Uhuru Kenyatta.
But they may not sit well with thousands of middle-class workers whose payslips have come under the biggest attack as the new administration loads additional levies to fund an ambitious pension, healthcare and housing plan.
Other than airlines, Kenya Police, Kenya Power and Kenya Wildlife Service, choppers have also become popular among wealthy individuals and politicians.
Wealthy Kenyans, including politicians during elections, hire helicopters and spend between Sh150,000 to Sh400,000 per hour.
Importers of helicopters are now one of the biggest beneficiaries in the latest amendments after the Treasury Cabinet Secretary Njuguna Ndung’u proposed to have them placed under the exempt status for three levies.
Before July 2021, the purchase of certain types of helicopters, aeroplanes and aircraft gear as well as parts such as tyres did not attract any tax.
The exemption also applied to individuals seeking to lease or hire helicopters. However, in the Finance Act 2020, persons seeking to hire or buy aeroplanes of an unladen weight not exceeding or exceeding 2,000 kilogrammes started paying VAT on their imports in what was aimed at collecting an additional Sh38.9 billion from wealthy individuals and industries.
The unladen weight of any aircraft is the weight when it is not carrying passengers or goods.
Currently, only aircraft parts such as propellers, balloons, gliders, hang gliders and other non-powered aircraft are exempt from paying the 16 percent VAT when brought into the country.
Imported aircraft weighing less than two tonnes and all types of helicopters are subjected to IDL and RDL, in what targets wealthy individuals who might import these birds for own comfort.
Industry players have welcomed the tax cuts as a major boost to tourism.
“The ever-increasing number of taxes are negatively impacting the air transport sector as Kenya is the only State regionally levying several taxes on aircraft, spare parts and fuel, making the industry uncompetitive and unsustainable,” said the Kenya Association of Air Operators chief executive officer Liz Aluvanze on Thursday.
“The association has over the years made petitions to the government to review the tax regime so as to provide the much-needed relief to the industry players in order to give them a fighting chance in the face of fierce regional and global competition,” Ms Aluvanze added.
Cap Mercy Makau, founder and president of the Young Aviators Club of Africa, said reducing the cost of importing spare parts and light aircraft is a huge benefit to Kenya because the cost of training would go down.
“It would promote tourism and sports aviation, growing the general aviation sector through recreational aviation, hence creating jobs,” she said.
In the Finance Act of 2020, Kenyatta’s administration also introduced a 25 percent import duty on the importation of helicopters, a move that pushed up the cost of buying these aircraft.
The move was part of the Treasury’s objective of getting rid of the many exemptions as advised by the International Monetary Fund.
According to the former Treasury Cabinet Secretary Ukur Yatani, the country was not getting any benefit from these exemptions for aircraft.
Mr Yatani noted that rather than these helicopters being used for humanitarian purposes such as flying patients from remote areas, they were being used by wealthy individuals and businesses to move around.
In 2022, Kenya imported aircraft and related equipment valued at Sh15.1 billion down from Sh17.9 billion in 2021, as importers grappled with the high cost that had been compounded by the shortage of semiconductors.
The total number of aircraft registered last year dropped by 1.5 percent to 726 compared to 2021, data from the Economic Survey 2023 reveals.
